Printable Format84-5-114. Assignment of proceeds. (a) In this section, "proceeds of a letter of credit" means the cash, check, accepted draft or other item of value paid or delivered upon honor or giving of value by the issuer of any nominated person under the letter of credit. The term does not include a beneficiary's drawing rights or documents presented by the beneficiary.
(b) A beneficiary may assign its right to part or all of the proceeds of a letter of credit. The beneficiary may do so before presentation as a present assignment of its right to receive proceeds contingent upon its compliance with the terms and conditions of the letter of credit.
(c) An issuer or nominated person need not recognize an assignment of proceeds of a letter of credit until it consents to the assignment.
(d) An issuer or nominated person has no obligation to give or withhold its consent to an assignment of proceeds of a letter of credit, but consent may not be unreasonably withheld if the assignee possesses and exhibits the letter of credit and presentation of the letter of credit is a condition to honor.
(e) Rights of a transferee beneficiary or nominated person are independent of the beneficiary's assignment of the proceeds of a letter of credit and are superior to the assignee's right to the proceeds.
(f) Neither the rights recognized by this section between an assignee and an issuer, transferee beneficiary, or nominated person nor the issuer's or nominated person's payment of proceeds to an assignee or a third person affect the rights between the assignee and any person other than the issuer, transferee beneficiary or nominated person. The mode of creating and perfecting a security interest in or granting an assignment of a beneficiary's rights to proceeds is governed by article 9 or other law. Against persons other than the issuer, transferee beneficiary or nominated person, the rights and obligations arising upon the creation of a security interest or other assignment of a beneficiary's right to proceeds and its perfection are governed by article 9 or other law.
History: L. 1996, ch. 202, § 14; July 1.
KANSAS COMMENT, 1996
This section is derived from the former 84-5-116(2) and (3) and is identical to the 1995 Official Text. As defined in subsection (a), proceeds are the value paid by the issuer of a letter of credit. The section does not cover an assignment of the right to draw on the letter of credit. That is covered in sections 84-5-112 and 84-5-113.
Under subsection (b), the beneficiary may make an assignment of proceeds in whole or in part, before or after presentation. The assignment operates currently, much like the granting of an interest in accounts under Article 9. The rights of the assignee of proceeds before presentment will be contingent on a proper presentment, however.
The priority to proceeds are covered by subsections (c), (d) and (e). Although the issuer or nominated person need not recognize the assignment until it consents under subsection (c), under subsection (d), the issuer must reasonably consent if the assignee possesses a letter of credit and presentation of the letter of credit is required for honoring the letter of credit. The issuer honoring a letter of credit in possession of the assignee is protected from double liability by the assignee's possession of the letter of credit. It is uncertain, however, what the result will be if consent of the issuer is not reasonably given. Will the issuer be liable to the assignee or the beneficiary? The confirmer is in the same position as the issuer pursuant to 84-5-107(a). Under subsection (e), a transferee beneficiary (84-5-112, dealing with transfers by the beneficiary, and 84-5-113, dealing with transfers by operation of law) has priority over an assignee. To protect itself, the assignee must therefore take steps to prohibit transfer of the beneficiary's interest, preferably by taking possession of the letter of credit pursuant to 84-9-304 and 84-9-305, which would satisfy subsection (d) and require the issuer to reasonably consent to the assignment.
Subsection (f) relegates the rights of the assignee and parties other than the issuer, transferee beneficiary or nominated person to Article 9 or other law. In many situations the proceeds of the letter of credit will also be proceeds of a perfected security interest in the beneficiary's inventory which is being sold to the applicant. Article 9 would control those priority contests.
Revisor's Note:
Former section 84-5-114 was repealed by L. 1996, ch. 202, § 91 and the number reassigned to the current text.
CASE ANNOTATIONS
1. Bank had the right to dishonor letter of credit based on beneficiary's fraud. Prairie State Bank v. Universal Bonding Ins. Co., 24 Kan. App. 2d 740, 745, 953 P.2d 1047 (1998).